The Portals Have Landed

When executives at Cooking.com began to talk last year about how they would draw consumers to their new Web store—a comprehensive shop aimed at people who love spending time in the kitchen—they settled on a well-worn marketing path: striking deals with portals to advertise the site.

Partnering with Yahoo! Inc., America Online Inc., Infoseek Corp. and other top portals was the company’s first marketing mission. The idea was to get Cooking.com listed on the portals, where millions of potential customers would be just a click away from visiting the site.

But unlike start-up firms of a few years ago, many of which leaped at the chance to partner with portals without demanding concrete and measurable results in return, Santa Monica, Calif.-based Cooking.com carefully scrutinized each deal. The company focused on strong return on investment opportunities, or a good ratio of cost per acquired sale, and tried to stick with deals that placed it specifically in portals’ shopping areas for the categories it covers.

That kind of take-charge attitude is what retailers need when they negotiate with portals today, consultants say. New research shows that portals, which drive less than a fifth of overall Internet sales, aren’t the be-all, end-all advertising medium retailers once believed. Merchants have to be careful about what they sign on for, realistic about what they expect from such arrangements, and savvy enough to invest in a wide range of marketing initiatives that include portal deals rather than depend on them.

“We went into this wanting to sign good deals that put us in very qualified areas,” says Tracy Randall, general manager and vice president of commerce at Cooking.com. “Most new companies go to the portals and pay too much for too little.”

At the same time that merchants are getting smarter about these deals, portal companies are working to secure their relevance in the e-commerce world. Portal companies are redesigning and improving their shopping channels and offering retailers new opportunities for featured spaces.

Keeping the eyeballs

Several portals also have partnered with or been acquired by larger communications and entertainment firms, which has put further emphasis on e-commerce. The Walt Disney Co., for example, recently purchased more than 40% of Infoseek, and Excite Inc. is slated to merge with @Home Network, a company that offers cable access to the Internet.

As portals go forward, they will have to keep the needs of both consumers and merchants in mind. “Portals right now are in the forefront,” says Harry Wolhandler, vice president of research at ActivMedia Inc., a Peterborough, N.H.-based consulting company. “They have the eyeballs, but that’s not guaranteed for tomorrow.”

All portal companies structure deals differently, so deals with portals vary greatly. They can include banner advertising; area sponsorship, whereby an online drugstore may sponsor a portal’s health section, for example; tenancy or featured merchant status; ad placement within news stories; and inclusion of the retailers’ products in the portal’s own stores.

Cooking.com went into negotiations knowing it wanted to buy space in portals’ shopping areas to get its name—a brand new company—in front of consumers when they were ready to buy. But some portal companies required the retailer to package shopping section deals with banner ads in other areas, Randall says. Cooking.com agreed to test banner ads by buying certain words, such as a brand name of cookware. The ads then appear when a consumer searches for that word.

No sale

Cooking.com tracked the ads to see how many people clicked through to its site. The results varied, but several campaigns proved worthwhile. On some Yahoo! banner ads, 20% of the people who saw the ad clicked onto Cooking.com. Yet while the ads have turned out to be good traffic drivers, they have not led to a large number of sales, she adds.

Apparel retailer Eddie Bauer also tests campaigns and makes portals prove their worth. The company, which began selling clothes online more than four years ago, always has invested in portal relationships. Today its portal buys include tenancy deals—where Eddie Bauer is a featured merchant—on AOL and Microsoft Network. The company also runs banner advertisements on AltaVista, Excite, Netscape Netcenter, Lycos Inc. and other premier players.

The tenancy deals have at least six-month contracts, while other arrangements are mostly month-to-month. “That gives us a lot of flexibility to change things,” says Judy Z. Neuman, division vice president of interactive media for Eddie Bauer, Redmond, Wash. When a portal doesn’t meet expectations, it’s dropped from the mix, Neuman says.

The company’s expectations, however, have changed dramatically over time. A majority of its online customers used to funnel through from portals, but today most people come directly to EddieBauer.com. Less than 15% of revenues are generated via portals, Neuman says.

Even so, the retailer continues to use portals to lure new customers. “Once they are on that high-traffic portal and they are in shopping mode, we’ve got a much better chance of converting them into a customer,” Neuman adds.

A balancing act

Experts agree that portal partnerships are one of the best ways to bolster brand identity and drive traffic through a Web store. But with wide, untargeted audiences, portals are not always good at producing actual sales for retailers, says Fiona Swerdlow, an analyst at New York-based Jupiter Communications. Two-thirds of the 36 companies polled by Jupiter said portals drove 30% or less of their sales.

However, America Online recently reported that its members spent more than $1.8 billion while shopping through the portal in the quarter ended March 31. The company earned $210 million in advertising and electronic commerce revenues for the quarter, which means for every $1 merchants spent on deals with AOL, they got $9 of revenues in return.

Revenues driven by portals will remain close to current levels for several years, Jupiter predicts. The company projects that total revenues from e-commerce-what people buy from merchants as well as stock trading fees-will skyrocket, from $7.9 billion in 1999 to $43.2 billion by 2002. But the portion of commerce revenues generated by the portals, which Jupiter puts at 18% for 1999, will grow to only 20% by 2002, Jupiter says.

When portals set up advertising spaces for merchants, they have to consider the needs of merchants like Eddie Bauer, which already have strong brand identities, as well as start-up companies like Cooking.com.

“We have to ask ourselves, What would a mature retailer want from us? What would a small merchant want from us? What would a big auction house require from us?” says B.D. Goel, senior vice president and general manager of commerce at Sunnyvale, Calif.-based Infoseek, which operates the Go Network in partnership with Disney. The portal, which gets 20 million unique visitors every month, wants to be an “intermediary for e-commerce,” Goel says.

Other portals are working to meet changing e-commerce needs by launching new initiatives and developing new strategies:

MSN.com, which shepherds about 40 million users a month through the Web, is working to improve its shopping offerings. The goal is to make MSN “a great place for people to learn about products and spend their money wisely,” says Kevin M. Wueste, general manager of commerce services at Microsoft Corp. in Redmond, Wash.

The portal has deals with about 60 retailers—Godiva Chocolatier is a featured merchant—and enables people to click through to those sites to buy products. The network plans to add value to those arrangements by helping consumers research product categories, find what they are looking for, compare prices and then actually make a purchase.

MSN is focusing on retailers, too, by building new merchandising opportunities, such as building space within news stories to sell products, Wueste says. A story on a new fashion trend, for instance, may offer the ability to buy the item through one of the portal’s retailers.

“Portals can be like drinking from a fire hose,” Wueste says. “You have a wide, wide audience that might not be as targeted as retailers would like it to be.”

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Lycos Network, which has 31.9 million visitors monthly, also offers retailers an integration plan that sprinkles products across relevant parts of its site. Music store promotions, for instance, pop up in the entertainment areas of the portal.

Lycos’ plans for e-commerce include selling products directly through the Lycos store and streamlining exchanges between retailers and consumers, according to Jeffrey S. Bennett, vice president of electronic commerce at the Waltham, Mass.-based company. “The next evolution will be to offer one-click purchasing across thousands of different buying opportunities.”

Excite, which has 20 million users, is working with Intel Corp. to build a huge database of products and product reviews that will be enhanced by personalization and product comparison technologies.

Retailers will be able to choose from a range of deals, says Jon H. Zeitlin, senior product manager for commerce at Redwood City, Calif.-based Excite. “If they want to make a big splash and be in the busiest parts of the service, we would develop more of an advertising relationship.” Excite plans to work with merchants rather than selling directly to consumers, Zeitlin says.

America Online, Dulles, Va., with 16.9 million users worldwide, recently announced it will improve shopping services on its site as well as within Netscape’s Netcenter and CompuServe, both of which it owns. The new services will include improved personalization features and product search capabilities.

Yahoo!, which has 31.3 million visitors each month, has developed a shopping channel that aggregates products from the more than 4,500 Web merchants who use Yahoo! Store software. Editors comb through retailers’ offerings, picking a diverse lot of products to offer in the shop-ping channel. Yahoo! Store merchants also can buy advertising within the shopping area and elsewhere. “What we do is so broad, it would be difficult for any one merchant to offer the same customized experience across boundaries,” says Tim Brady, vice president of production at Santa Clara, Calif.-based Yahoo!

The portal’s e-commerce focus extends beyond its shopping channel, with Yahoo! Auctions and Yahoo! Classifieds.” “E-commerce is threaded throughout the network,” Brady says. “It is critical to the success of the company.”

Trapping the consumer

As merchants examine, test and think about portals’ new ideas, they are greeting some with enthusiasm and others with trepidation. Cooking.com, for instance, is participating in Yahoo!’s online store environment, which aggregates its merchants’ products under one umbrella store. But it’s selling only a few items as a test with certain reservations.

“Companies like Cooking.com go to great lengths to create unique shopping and customer service experiences in our categories,” Randall says. But when a shopping cart is within a portal, that means the customer doesn’t go through to the Cooking.com site.

She suggests that the portals are infringing on those benefits by keeping customers in their own environment, and that price comparisons don’t deliver a good customer experience for any products beyond commodity goods, such as books or music.

Portals’ moves to become
e-commerce players themselves are causing Eddie Bauer to re-examine some of its marketing deals with portals as well. “Retailers’ future relationships with portals will be highly dependent on whether the portals are competing with the retailers,” says Neuman.

Portals argue that there are benefits. Lycos has been involved in several direct selling promotions, offering such things as Star Wars merchandise to people using the site.

Surfers = shoppers

Lycos isn’t competing with merchants when it sells products directly, says Bennett. “Direct selling is highly complementary to what we have been doing with merchants because it expands the e-commerce model,” he says. “We think it’s a great service for our consumer base to be able to get things directly while they’re with us.” Even so, Lycos has a policy not to sell any products sold by retailers guaranteed exclusive positioning on the portal.

Portals are simply looking for new ways to generate revenues, says Andrew B. Whinston, director of the Center for Research in Electronic Commerce, University of Texas at Austin. By offering to be a “mall” and offering other e-commerce products, he adds, portals can get into new areas such as providing banking transaction services to mall members, thus beefing up their revenues. “Portals have to grow their business model, and that’s what they are doing,” Whinston says.

Portals’ revenue stream from merchants in all of its various forms won’t end anytime soon, Jupiter’s Swerdlow says. Almost two-thirds of retailers polled by Jupiter said they would consider renewing portal deals. And while just 5% of respondents said they were “highly likely” to renew, portals are confident they will continue to win a portion of merchants’ advertising budgets.

Even if mature retailers such as Amazon.com or Cyberian Outpost begin to scale back their portal relationships, new e-commerce players are always coming up, and they may be willing to pay even more to get their name out there. “Companies are clamoring for the space,” says Infoseek’s Goel.

Yet while it is clear merchants want to be a part of portals, the relationships have to be of some measurable value. “When retailers do advertising deals with us, they are doing it to build their brand,” says Excite’s Zeitlin. “But they are also doing it to sell products. So it’s pretty important that we have a convincing way of merchandising and of turning surfers into shoppers.”

MargaretAnn Cross is a business writer in Allentown, Pa.

Here’s the Deal: Smarten Up

Merchants have to get smart when it comes to negotiating deals with portals, says Fiona Swerdlow, an analyst at Jupiter Communications. She offers these tips:

Review contracts carefully. Understand what such things as “exclusivity” really means. For example, America Online has “exclusive” relationships with Barnesandnoble.com and Amazon.com in different areas of its service, Swerdlow says.

Have a clear objective. Your goal may be to build your brand, for example, or to drive sales. Determining whether a portal deal is cost-effective will be based on what you are trying to achieve.

Get quantifiable measurements. When portals promise to build your brand, do tests, such as pre- and post-campaign recall tests.